Question
Suppose the spot and 3-month forward rates on the Brazilian real (BRL) are $1 = BRL3.2573 and $1 = BRL3.3550, respectively. The annual risk-free rate
Suppose the spot and 3-month forward rates on the Brazilian real (BRL) are $1 = BRL3.2573 and $1 = BRL3.3550, respectively. The annual risk-free rate in the US is 2.36%, & the annual risk-free rate in Brazil is 10.46%.
a. Is there an arbitrage opportunity here? If so, how would you exploit it if you can borrow up to BRL162,865 or $50,000?
b. What must the 3-month exchange rate between the dollar and the Brazilian real (BRL) be to prevent arbitrage?
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Business And Personal Finance
Authors: McGraw-Hill
1st Edition
0078945801, 9780078945809
